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4 Differences Between the UK and US Student Loans Systems

Written by: Jody Adams
Last updated: March 25, 2024

Examining the differences between the UK and US student loan systems has many advantages. It can help students and their families decide how to pay for college smartly. Understanding the main differences, like loan amounts, repayment terms, and loan forgiveness programs, is necessary. 

Knowing these differences will help students prepare for a much more affordable and convenient university life wherever they want to enroll.

Key Differences

  1. In Loan Amount

Education and living costs are different in the US and UK. It's expected that the loan amounts for student loans are also different. A student can usually get more money in student loans in the US than in the UK. It's because higher education and living costs are generally higher in the US. 

In the US, the most a first-year student can borrow is around $12,500 annually. In the UK, a first-year student can borrow around £9,000 per year. In the US, graduate students can borrow up to $20,500 annually. The most they can borrow in the UK is £11,570 for the whole course.

US students can also get grants to help pay for their schooling. Undergraduates qualified for the Federal Pell Grant may get up to $6,495 per year. Private groups and universities also offer similar opportunities. These grants and scholarships can cut down on the general cost of college and make it easier to pay back student loans.

There's not much like these grants in the UK. The government only has student loans to help out its students.

  1. The Student Loan Forgiveness Privilege

US and UK student loan systems differ when it comes to student privileges, especially the student loan forgiveness provisions. 

Student loan forgiveness options are available in the United States. Loan forgiveness programs are available for certain professions, such as teachers and public servants. After several years of service, these options may forgive part or all of the remaining loan balance. 

However, in the UK, no loan forgiveness programs are currently available. Instead, any remaining loan balance is typically extinguished after a set number of years of repayment, usually after 30 years. This means that in the UK, loan forgiveness is based on the length of the repayment period rather than the type of profession.

  1. The Student Loan Interest Rate

The interest on student loans is different in the US and the UK. 

In the US, Congress decides on interest rates, which can change depending on the type of loan. Usually, rates for undergraduate loans are between 2.75 and 6.28 percent, and rates for graduate loans are between 4.30 and 7.08 percent. The market rate is used to figure out the interest rate, which can change yearly.

In the UK, on the other hand, student loan interest rates are linked to inflation and change based on the borrower's income. The interest rate is currently 3% for people who earn more than £27,295. For people who make less than the posted income, the interest rate is found by adding 3% to the nation's Retail Price Index (RPI).

  1. The Student Loan Repayment Scheme

The US and UK have different ways of paying back college loans. In the US, most students have to start paying back their loans six months after graduation. No matter how much money they make. Plans for paying back loans vary but usually last from 10 to 25 years.

In the UK, students don't have to start paying back their loans until they make at least £27,295 per year. Repayments are taken out of their paychecks automatically. They are based on how much of their income is above this level. Usually, you have 30 years to repay the loan, after which any remaining amount is forgiven.

Bottom Line

How long it takes to repay the loan and where the money comes from can help students choose the best ways to earn their education that fits their needs and finances. The insights here may also help policymakers and educators learn from each other's ways of doing things.

The US and UK governments may be able to look for more ways to make things better so that students have access to fair and cheaper ways to pay for their education.

Jody Adams
Jody Adams is an accomplished editor-in-chief with a deep understanding of social care and government benefits issues. With a background in journalism and a master's degree in Public Policy, Jody has spent her career shaping the narrative around social policies and their impact on society. She has worked with renowned publications, effectively bridging the gap between complex policy analysis and public understanding. Jody's editorial expertise ensures that vital information on social care and government benefits reaches a broad audience, empowering individuals to make informed decisions.
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